Quo Vadis Tax and Levy Burden of Wages in the Czech Republic? Tax Reform in 2022

Michal Krajňák

Abstract


The article deals with changes in personal income taxation in the Czech Republic in 2022 and their impact on the tax burden. The article also deals with the levy burden represented by payments for social security contributions. An extensive tax reform changing the method of taxation of income from dependent activities took place in the Czech Republic in 2021. Its continuing effects was added with impact of legislation changes after 1 January 2022. The most significant change is the increase in the taxpayer’s relief by CZK 3,000. The assessment of how these changes affect the tax burden was made by calculating the effective tax rates. The research methodology includes methods of regression and correlation analysis and methods for time-series analysing. The average wages used by the Czech Social Security Administration for the purposes of calculating social security contributions were used for the analysis. The results show that the tax burden has decreased since 2022 if basic taxpayer relief is applied. For the taxpayer, who, in addition to the taxpayer’s relief, also claims a tax credit for children, the tax burden increases slightly. Although in most cases, the income is subject to the nominal linear tax rate, in comparison with the previous year, there is an increase in the progressivity of the personal income tax due to the rise of the tax relief per taxpayer. On the other hand, social security contributions are both nominally and real linear. There are no significant reforms in this area in comparison with the tax burden. Due to the decrease in the tax burden, in some cases, the levy burden of social security contributions is higher, even though their nominal rate is lower than the nominal income tax rate.

For citation

Krajňák M. Quo Vadis Tax and Levy Burden of Wages in the Czech Republic? Tax Reform in 2022. Journal of Tax Reform. 2022;8(1):25–39. https://doi.org/10.15826/jtr.2022.8.1.106

Article info

Received January 2, 2021; Revised February 6, 2022; Accepted April 2, 2022


Keywords


Czech Republic, effective tax rate, personal income tax, social security contribution, tax burden, tax reform, tax credit, tax relief for taxpayer

References


Goudswaard K., Caminada K. Social Security Contributions: Economic and Public Finance Considerations. International Social Security Review. 2015;68(4):25–45. https://doi.org/10.1111/issr.12086
2. Alm J., Dronyk-Trosper T., Sheffrin M. What Drives State Tax Reforms? Introduction. Public Finance Review. 2017;45(4):443–457. https://doi.org/10.1177/1091142116675028
3. Feldstein M. The Tax Reform Legislation of 2017. Journal of Policy Modeling. 2018;40(3):503–508. https://doi.org/10.1016/j.jpolmod.2018.02.010
4. Gnangnon S. Effect of Development Aid on Tax Reform in Recipient-Countries: Does Trade Openness Matter? Journal of International Commerce Economics and Policy. 2020;11(1):205001. https://doi.org/10.1142/S1793993320500015
5. Gnangnon S. Tax Reform and Trade Openness in Developing Countries. Journal of Economic Integration. 2019;34(3):498–519. https://doi.org/10.11130/jei.2019.34.3.498
6. Bierbrauer F., Boyer P., Peichl A. Politically Feasible Reforms of Nonlinear Tax Systems. American Economic Review. 2021;111(1):153–191. https://doi.org/10.1257/aer20190021
7. Gao P. China‘s 40 Years of Fiscal and Tax Reform: A Basic Trajectory. China & World Economy. 2018; 26(2):94–106. https://doi.org/10.1111/cwe.12238
8. Fedosov V., Tymchenko O., Babichenko V. Tax Transformations Effects. Financial and Credit Activity-Problems of Theory and Practice. 2019;2(29):462–475. https://doi.org/10.18371/fcaptp.v2i29.172216
9. Ilzetzki, E. Tax Reform and the Political Economy of the Tax Base. Journal of Public Economics. 2018;164:197–210. https://doi.org/10.1016/j.jpubeco.2018.06.005
10. Frish R., Zussman N., Igladov S. The Wage Response to a Reduction in Income Tax Rates: The Israeli Tax Reform. B E Journal of Economic Analysis & Policy. 2020;20(2). https://doi.org/10.1515/bejeap-2019-0043
11. Mayburov I., Kireenko A. Tax Reforms and Elections in Modern Russia. Journal of Tax Reform. 2018;4(1):73–94. https://doi.org/10.15826/jtr.2018.4.1.046
12. Ye J., Guo X., Luo D., Jin X. The Heterogeneous Tax Burden: Evidence from Firm-Level Data in China. Singapore Economic Review. 2018;63(4):1003–1055. https://doi.org/10.1142/S0217590817420073
13. Jerkovic E. Legal Challenges of Reduction of The Tax Burden on Labour in the Republic of Croatia. International Scientific Conference on EU and Member States– Legal and Economic Issues. 2019:1008–1029.
14. Milligan K. Average Tax Rates in the Canadian Personal Income Tax. National Tax Journal. 2021;74(2):513–527. https://doi.org/10.1086/714386
15. Gordon S. The Incidence of Income Taxes on High Earners in Canada. Canadian Journal of Economics-Revue Canadienne d'economique. 2020;53(2):437–459. https://doi.org/10.1111/caje.12433
16. Muellbacher S., Nagl W. Labour Supply in Austria: an Assessment of Recent Developments and the Effects of a Tax Reform. Empirica. 2017;44(3),465–485. https://doi.org/10.1007/s10663-017-9373-7
17. Aganbegyan A. On Tax Reform. Ekonomicheskaya Politika. 2017;12(1):114–133. (In Russ.)https://doi.org/10.18288/1994-5124-2017-1-05
18. Karlin M. Tsymbaliuk O., Prots N. Features Tax Reform and Mechanism of Hiding Ta-xes in Ukraine. Financial and Credit Activity– Problems of Theory and Practice. 2018;1(24):123–130.
19. Apps P., Rees R. Optimal Family Taxation and Income Inequality. International Tax and Public Finance. 2018;25(5):1093–1128. https://doi.org/10.1007/s10797-018-9492-5
20. Hájek M., Zimmermannová J., Helman K. Environmental Efficiency of Economic Instruments in Transport in EU Countries. Transportation Research Part D-Transport and Environment, 2021;100:103054. https://doi.org/10.1016/j.trd.2021.103054
21. Krzikallová K., Střílková R. Labour-Intensive Services and Changes in Value Added Tax Revenue. Journal of Competitiveness. 2016;8(1):5–18. https://doi.org/10.7441/joc.2016.01.01
22. Burkhauser R., Hahn M., Wilkins R. Measuring Top Incomes Using Tax Record Data: a Cautionary Tale from Australia. Journal of Economic Inequality. 2015;13(2):181–205. https://doi.org/10.1007/s10888-014-9281-z
23. Nadirov O., Dehning B., Pavelková D. Taxes and the Incentive to Work under Flat and Progressive Tax Systems In Slovakia. Economics & Sociology. 2021;14(2):40–55. https://doi.org/10.14254/2071-789X.2021/14-2/2
24. Janousková J., Kirschnerová P. Tax Policy of the Czech Republic and Securing Funds for Retirement. Ekonomický časopis. 2018;66(9):888–908.
25. Heathcote J., Storesletten K., Violante G. Optimal Tax Progressivity: An Analytical Framework. Quartely Journal of Economics, 2017;132(4):1693–1754. https://doi.org/10.1093/qje/qjx018
26. Farfan-Portet M., Hindriks J., Lorant V. Progressivity of Childcare Tax Policies in Belgium. Recherches Economiques De Louvain-Louvain Economic Review. 2008;74(2):143–149. https://doi.org/10.3917/rel.742.0143
27. Genschel P., Seelkopf L. Did they Learn to Tax? Taxation Trends Outside the OECD. Review of International Political Economy. 2016;23(2):316–344. https://doi.org/10.1080/09692290.2016.1174723
28. Sokolovska O. Current Trends in Labor Taxation in an Open Economy. Vestnik Sankt-Peterburgskogo Universiteta-Ekonomika = St Petersburg University Journal of Economic Studies. 2018;34(1):77–94. (In Russ.) https://doi.org/10.21638/11701/spbu05.2018.104
29. Neumann M. Earnings Responses to Social Security Contributions. Labour Economics. 2017;49:55–73. https://doi.org/10.1016/j.labeco.2017.10.001
30. Tepperová J. Personal Income Tax and Social Security Coordination in Cross-Border Employment– a Case Study of the Czech Republic and Denmark. European Journal of Social Security. 2019;21(1):23–41. https://doi.org/10.1177/1388262719833766
31. Mueller K., Neumann M. Who Bears the Burden of Social Security Contributions in Germany? Evidence from 35 Years of Administrative Data. Economist-Netherlands. 2017;165(2):165–179. https://doi.org/10.1007/s10645-017-9298-3
32. Adam S., Roantree B., Phillips D. The Incidence of Social Security Contributions in the United Kingdom: Evidence from Discontinuities at Contribution Ceilings. Economist-Netherlands. 2017;165(2):181–203. https://doi.org/10.1007/s10645-017-9295-6
33. Paseková M., Kolářová, E., Otrusinová, M. Assessment of Accounting Spheres as Viewed by Accountants of Czech Enterprises. International Advances in Economic Research. 2018;24(2):295–296. https://doi.org/10.1007/s11294-018-9693-9
34. Marks S. Non-tariff Trade Regulations in Indonesia: Nominal and Effective Rates of Protection. Bulletin of Indonesian Economic Studies. 2017;53(3):333–357. https://doi.org/10.1080/00074918.2017.1298721
35. Wang G., Zhu K., Shao X. Testing for the Martingale Difference Hypothesis in Multivariate Time Series Models. Journal of Business & Economic Statistics. 2021. https://doi.org/10.1080/07350015.2021.1889568
36. Coscia M. Pearson Correlations on Complex Networks. Journal of Complex Networks. 2021;9(6):cnab036. https://doi.org/10.1093/comnet/cnab036
37. Splinter D. US Tax Progressivity and Redistribution. National Tax Journal. 2020;73(4):1005–1024. https://doi.org/10.17310/ntj.2020.4.04
38. Stroup M. An Index for Measuring Tax Progressivity. Economics Letters. 2005;86(2):205–213. https://doi.org/10.1016/j.econlet.2004.06.017
39. Festa A. Tax Relief, Tax Wedge and Regional Employment: Evidence from Italy. European Journal of Law and Economics. 2005;38(1):117–137. https://doi.org/10.1007/s10657-012-9358-8
40. Matejka L. Judicial Review of Tax and Tax Attribution Relief in the Czech Republic. E & M Ekonomie a Management. 2009;12(1):57–67.
41. Rodgers L. Give Credit Where? The Incidence of Child Care Tax Credits. Journal of Urban Economics. 2018;108:57–71. https://doi.org/10.1016/j.jue.2018.10.002
42. Ayers B., Li, O., Robinson J. Tax-Induced Trading around the Taxpayer Relief Act of 1997. Journal of the American Taxation Association. 2008;30(1),77–100. https://doi.org/10.2308/jata.2008.30.1.77
43. Mertler C. Advanced and Multivariate Statistical Methods. 2013. Glendale: Pyrczak Publishing.
44. Daniels J., VanHoose, D. Openness, Income-tax Progressivity, and Inflation. Journal of Macroeconomics. 2009;31(3):485–491. https://doi.org/10.1016/j.jmacro.2008.10.003
45. Azmat G. Incidence, Salience, and Spillovers: The Direct and Indirect Effects of Tax Credits on Wages. Quantitative Economics. 2019;10(1):239–273. https://doi.org/10.3982/QE319
46. Szabone E. Opportunities for Simplification in the Personal Income Tax Systems of the Visegrad Countries. Public Finance Quarterly-Hungary. 2020;65(4):531–553. https://doi.org/10.35551/PFQ_2020_4_6
47. Bonifert E. Missed Opportunities of Simplification Regarding Personal Income Tax Systems in Hungary. Public Finance Quarterly-Hungary. 2021;66(3):337–358. https://doi.org/10.35551/PFQ_2021_3_2




DOI: https://doi.org/10.15826/jtr.2022.8.1.106

Copyright (c) 2022 Michal Krajňák

SCOPUS logo eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

© Journal of Tax Reform : ISSN 2414-9497 (online), ISSN 2412-8872 (print)